Brent holds above $107; US, Europe fiscal woes in focus

Supply worries caused by tension in the Middle East over Iran’s nuclear programme and rising violence in Syria, however, are likely to continue to lend support to prices. Photo: AFP

Singapore: Brent crude futures edged above $107 on Friday and were poised to end the week with a marginal gain, their first in four, but prices are likely to remain under pressure as the outlook for the global economy, and fuel demand, remains weak.

Oil prices went on a rollercoaster ride this week. US President Barack Obama’s re-election ended weeks of political uncertainty and lifted prices, but a possible US fiscal crisis, and more grim news about Europe’s economic woes, weakened futures.

Supply worries caused by tension in the Middle East over Iran’s nuclear programme and rising violence in Syria, however, are likely to continue to lend support to prices.

“Politics is going to take centre-stage as far as commodity markets are concerned,” said Natalie Rampono, a commodity strategist at ANZ.

“At the same time, Syria and Iran will provide a little bit of support, so we expect choppy and sideways trading next week.”

Front-month Brent futures traded 20 cents higher at 107.4 per barrel by 08:20 am, so far posting a 1.6% gain on the week. It rose as much as 3% and dropped as much as 4% on some days this week.

US crude added 21 cents to $85.30 per barrel, after posting gains of 4% and 5% during some of this week’s sessions. It is up 0.5% so far this week.

A snowstorm in the northeastern United States, and gasoline rationing, are also likely to curtail demand and pressure prices further.

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Greece remains the focus of the European crisis, with European Central Bank chairman Mario Draghi saying that the bank was done helping the near-bankrupt nation with its problems.

Draghi also gave a rather bleak outlook for the overall euro zone economy, saying it showed little sign of recovering before the year-end, despite easing financial market conditions.

In the United States, investors are now focused on the looming “fiscal cliff” - a $600 billion package of spending cuts and tax measures which may pull the economy into deep recession.

The International Monetary Fund on Thursday urged the United States to quickly reach an agreement on a permanent fix to avoid the fiscal cliff, saying a stop-gap solution could be harmful to the global economy.

Oil prices may get a boost next week after China announces October trade data on Saturday which is expected to show a slight pickup in imports, pointing to a recovery in domestic demand in the world’s second biggest energy consumer.

Iran’s tensions with the West over its nuclear programme also appeared to take a turn for the worse after the Pentagon said on Thursday that Iranian warplanes fired at an unarmed US drone in international airspace last week but did not hit the aircraft.

In Syria, rebels are fighting a 19-month battle against government forces, and skirmishes along the country’s borders are escalating tensions with its neighbours, especially Turkey.

On Thursday, President Bashar al-Assad said he would “live and die” in Syria and warned that any Western invasion to topple him would have catastrophic consequences for the Middle East. Reuters